1. Describe how Enron could have been structured differently to avoid such
Enron Corporation was an energy company based in Houston, Texas employing around 21,000 people by mid-2001 (before bankruptcy). A series of fraudulent accounting techniques, supported by their audit firm, then prestigious firm Arthur Andersen, allowed this company to be considered the seventh company in the United States, and was expected to remain dominant in their areas of business. Instead, it became then the largest corporate fraud in history and the archetype of planned corporate fraud. Enron filed for bankruptcy in Europe on November 30 and in the United States on December 2, 2001. Enron was formed in 1985 by the merger of Houston Natural Gas and InterNorth. The merger was directed by Kenneth Lay, chairman of Houston Natural Gas. Originally dedicated to the transmission and distribution of electricity and gas throughout the United States, and the development, construction and operation of power plants, pipelines, etc. worldwide, according to Enron Corporation – Company Profile, Information, Business Description, History, Background Information on Enron Corporation (2002).
Enron grew exponentially in its original area and over time developed new markets in the area of communications, management Risk and insurance in general. At the time, Fortune magazine named her as the most innovative company in the United States for five years consecutive between 1996 and 2000. It also appeared in the list of 100 best employers in the magazine in 2000, and was known for grandstanding its facilities among business executives. It should be noted that Enron could have been structured differently to avoid such activities. There have been different possibilities to change the direction of the business development and a series of fraudulent accounting techniques, supported by their audit firm could have been avoided.
2. Discuss whether Enron officers acted within the scope of their authority.
The reputation of the company began to decline due to the persistent rumors of bribery and influence peddling to obtain contracts Central America, South America, Africa, the Philippines and India. There were also rumors about the use of these practices in a contract of 30 000 billion energy company with Maharashtra State Electricity Board. It can be said that Enron officers did not act within the scope of their authority. There were many cases of fraud and prohibited actions of the employees that led to the bankruptcy. After a series of scandals over the use of accounting malpractice, Enron reached the edge of bankruptcy by mid- November 2001. The company’s stock fell on Wall Street in no time 85 to $ 30 when it was revealed that most Enron’s earnings were the result of business with one of its subsidiaries, a practice that allowed them to “make up”¯ in the financial statements had suffered huge losses, after which collapsed. It can be said for sure that the Enron officers did not act properly and legally, which further caused serious consequences.
Many Enron executives were charged with a variety of positions and were subsequently sentenced to prison. Enron’s auditor, Arthur Andersen, was found guilty in U.S. District Court, but by the time the Supreme Court of the United States reversed the ruling, the company had lost most of its customers and was closed. Employees and shareholders received limited returns in trials, despite losing billions in pension and stock prices. As a result of the scandal, new laws and regulations enacted to expand the companies’ financial public accuracy. In particular, the Sarbanes-Oxley Act expanded the impact by destroying, altering or fabricating records in federal investigations or trying to scam the actionists. The law also increased the liability of audit firms to remain neutral and independent from their clients.